Leggett & Platt, Incorporated (LEG)

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Leggett & Platt Inc. (LEG)

Q1 2010 Earnings Call Transcript

April 22, 2010 9:00 AM ET

Executives

David DeSonier – Vice President of Strategy and Investor Relations

David Haffner – President and Chief Executive Officer

Karl Glassman – Executive Vice President and Chief Operating Officer

Analysts

Mark Rupe – Longbow Research

Chad Bolen – Raymond James

Keith Hughes – SunTrust

John Baugh – Stifel Nicolaus

Joel Harvard – Hilliard Lyons

Mike Smith – Kansas City Capital

Fred Speece – Speece Thorson Capital Group

Jon Evans – Edmunds White

Presentation

Operator

Greetings and welcome to the Leggett & Platt’s first quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David DeSonier, Vice President of Strategy and Investor Relations for Leggett & Platt. Thank you. You may begin.

David DeSonier

Good morning and thank you for taking part in Leggett & Platt's first quarter conference call. I’m Dave DeSonier and with me today are the following; Dave Haffner, our CEO and President; Karl Glassman, the Chief Operating Officer; and Matt Flanigan, who is our CFO.

The agenda for the call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl will provide operating highlights, and Dave will then address our outlook for the full year. And finally, the Group will answer any questions you have.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our expressed permission. A replay is available from the IR portion of Leggett's website.

We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information. Those slides are intended to supplement the information we discuss on this call.

I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section of our 10-K entitled forward-looking statements.

I’ll now turn the call over to Dave Haffner.

David Haffner

Good morning and thank you all for participating in our call. Notable demand improvement in several of our end markets was reflected in the first quarter results we reported yesterday. First quarter 2010 sales from continuing operations increased 14% over the prior year. Unit volumes grew approximately 18% but were partially offset by steel related price deflation that occurred in the first half of 2009.

First quarter 2010 earnings from continuing operations were $0.30 per share. This includes a $0.03 per share net benefit from unusual items which is comprised of a $0.05 per share benefit associated with the sale of a building and several smaller items that net to $0.02 per share expense. In the first quarter of 2009, earnings from continuing operations were $0.02 per share and included a $0.04 per share charge related to a customer bankruptcy. The year-over-year earnings increase primarily reflects higher sales and the associated improvement in capacity utilization, cost reduction initiatives implemented in 2009 and pricing discipline.

As anticipated, the incremental unit volume we realized in the first quarter generated contribution margins in line with our approximate 30% expectation.

Steel cost increased during the first quarter. These increases included further escalation in scrap cost which compressed metal margins at our steel rod mill. The first quarter earnings impact from LIFO expense and lower metal margins combined was approximately $0.03 per share. Market prices for steel rod have begun increasing and we expect metal margins to improve in the coming quarters. As a result of the cost increases, we have announced and are in the process of implementing price increases in our major steel based businesses.

The company’s primary financial objective is to consistently achieve total shareholder return within the top one third of the S&P 500. From January 1st, 2008 through April 20th, 2010, we posted TSR over 49%, which ranks in the top 4% of the S&P 500.

Our financial profile remains strong. We ended the quarter with net debt at 25.6% of net capital, which is well below the low end of our long-term targeted range of 30% to 40%. We currently have over $400 million available and two years remaining on our $600 million bank facility and we have no significant fixed term debt maturities until 2013. Our cash balance at the end of the first quarter was $247 million. We generated $51 million of cash from operations during the quarter. Though working capital dollars increased in correlation to sales, as a percent of sales, it remained at a lean 14.2%.

We repurchased approximately 2 million shares of our stock during the quarter at an average price of $19.75 per share. We also declared a first quarter dividend of $0.26 per share. At yesterday’s closing price of $23.14, the current dividend yield is 4.5%. The dividend remains a key lever in achieving our TSR goal. And as consistent had been the case for many years, we expect operating cash in 2010 to comfortably exceed the amount required to fund dividends and capital expenditures.

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